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home : Money : Personal Finances :

Why Think About Retirement Now?

Believe it or not, now is the perfect time to start thinking about that nest egg -- especially if you're a woman.

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I know what you're thinking: "I'm in my 20s, I'm young, I want to live life, I really don't want to worry about saving and retiring right now. I've got plenty of time to worry about that." Yes you do - but why worry about it at all during the long-haul if you do your homework now?

I never seriously thought about long-term financial planning, or much less about retirement, until my father - who copies my siblings and me on every e-newsletter he gets on financial matters (which I usually just skim over and then file) - sent a couple of articles about women and retirement.

According to a Merrill Lynch Survey, a woman needs $55,000 in her retirement account by age 35 to retire comfortably at 65. A man needs just about $16,000 by that same age.

The articles that presented that fact also posed the following problem: women need more money than men to retire comfortably and worse, it seems more difficult for them to save that money. Why? Primarily because of a combination of biology, and institutionalized and cultural sexism. Read on.

  • Biology. Women tend to outlive men (on average by about 7 years). In fact, according to Kerry Hannon, author of "The Retirement Gap: Why Women Need More Money Than Men Do," an average woman retiring at 65 today will probably live another 25 years. At that rate, she'll likely outlive her savings.
  • Income. Women ages 35 to 44 are making $.74 for every dollar earned by a man, whereas younger women are making closer to $.84 per man-dollar. While the prospects for our generation are looking better, those numbers mean that it's still harder for working women to save for retirement. Think of it this way: if middle-aged women lose $250,000 over a lifetime just due to the gender gap, then the numbers start to mean something. Something scary. Furthermore, most women still inhabit the lower rungs of the career-ladder, with many working administrative and clerical jobs, or working for smaller companies; three out of four women make under $30,000.
  • Women tend to save too little. Rather than putting away an estimated 10% of their income per year as most experts recommend, women barely put away 1.5% of their salary. Furthermore, when they do put it away, women tend to put their savings in CDs or savings clubs, according to Annette Letterese, author of "Women and Retirement Wake-Up Call!" Men tend to handle their money more aggressively, investing in stocks, for example.
  • Gender Roles. The fact that many women take time to raise a family during their career reduces their earning years and may affect that steady track to promotions or raises. Less time away also cuts into the possibility of a higher pension fund. As it is, according to "Wake-Up Call for Women" author David Brace, women only receive half the average pension benefits that men do.

While it's true that the future is looking better for women of younger generations, the baby boomer women are a good example to learn from. Since the older generation of women has been predominantly dependent on their husbands' financial well-being, the loss of that person can be financially (not to mention emotionally) devastating. On average, a woman in the U.S. is widowed at 55 - top that stat with the fact that 80% of widows who were financially secure while their husbands were alive are below the poverty line, and the statistics look even more somber.

While I like to think that younger generations of women are gearing for financial independence regardless of whether or not they intend to marry or spend their lives with a partner, the current numbers warn us to take a more proactive stance toward retirement. Be aggressive, invest, and put some money away for yourself. Open a savings account and budget a percentage of your monthly income to put away. You don't even need to have loads of money to start investing, as long as your research your options. That way, when you're older, all you'll have to worry about is being able to reach for the pina colada to wash down your calcium supplement.

Also of interest: Getting Personal About Finances, Tackling Your Taxes, Good Saving Habits, 401K Crash Course, Top Financial Surprises.

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